1 Country Fueling Big Profit Margins for Big Oil

Most of us probably have no idea where Malaysia is located. Even fewer probably know of its natural resource riches. That needs to change because Malaysia should prove to be an important location for oil companies looking for growth. Not to mention its importance to investors looking to profit from that growth.

For those needing a quick geography lesson, Malaysia is located in Southeast Asia and it's actually two separate land masses separated by the South China Sea. Its that geographic location that's important because of its close proximity to oil thirsty China.

Speaking of oil, Malaysia is actually the second largest oil and gas producer in Southeast Asia and it's the second largest exporter of liquefied natural gas in the entire world. Further, Malaysia is estimated to hold the fifth largest oil reserves in Asia-Pacific and one of the top 30 holders of oil reserves in the world. Malaysia really is resource rich. 

Oil producers are enticed by the compelling combination of an excellent resource base that's in close proximity to China. It's a recipe for high margin oil growth, which is the reason why ConocoPhillips (NYSE: COP  ) is especially drawn to the country. Conoco has a two-fold strategy to deliver returns to its investors. First, it's planning to grow its production by 3%-5% annually through 2017. At the same time its plan is to grow its profit margins by the same 3%-5% annual rate. Investing in Malaysia accomplishes both of those goals, which is detailed on the slide below.

Source: ConocoPhillips Investor Presentation (link opens a PDF)

Note the graph in the lower right hand corner. Malaysia's margins are by far the best in Conoco's portfolio of major projects. So, not only does Conoco expect meaningful production growth from its developments in Malaysia, but these will really impact its bottom line.

Conoco is not alone in its pursuit of profits from Malaysia. It has actually partnered with Shell (NYSE: RDS-A  ) and Murphy Oil (NYSE: MUR  )  on a number of the projects it will be bringing online over the next few years. One of the projects, Gumusut, is actually operated by Shell and should really start flowing production by the end of this year as a permanent, semisubmersible floating production and storage vessel is placed into service. What's incredible about this project was that it was first drilled in 2003 and is just now coming online a decade later. It shows just how long it can take to bring an offshore project online.

Another major project, the Siakap North-Petai, or SNP which is operated by Murphy is also scheduled to begin delivering its first production this year. Oil was first discovered here in 2007, so its lead time wasn't quite as long as Gumusut. Investors should keep an eye on these two projects which will be delivering the initial production and margin boost that ConocoPhillips is counting on so that it can deliver on its strategic growth plan.

Malaysia should also prove to be needle moving for Murphy Oil. One reason why the company is investing in the country is because it gets some of the highest prices for crude oil in South East Asia. That will do wonders for the returns on the capital it's spending to grow its production, so its no surprise to see it spending an out-sized chunk of its capital on its Malaysian assets. In fact, Murphy is spending 42% of its $3.6 billion development budget this year is being spent in Malaysia.

Bottom line, investors need to keep Malaysia on their radar. It's providing needle-moving production and margin growth for companies like ConocoPhillips and Murphy Oil. Even better, as world oil prices stay over $100 per barrel thanks to increased demand from China these Malaysian investments should yield an even better return than current projections.

Three More Stocks for $100 Oil
Conoco and Murphy are really benefiting the high margins that $100 oil bring. They are not alone. We think that there are three other stocks that could do even better. So, to help investors get rich off of rising oil prices, our top analysts prepared a free report that reveals three stocks that are bound to soar as oil prices climb higher. To discover the identities of these stocks instantly, access your free report by clicking here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2641117, ~/Articles/ArticleHandler.aspx, 9/18/2014 7:51:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement